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How to Develop a Budget That You & Your Organisation Can Live With

Putting together your library budget can be a daunting task to say the least. With few Librarians coming from a business background, it’s all too easy to feel out of your depth. Yet, a strong budget is an integral part of running a successful and productive library service. Organisations today need a highly detailed and accurate budget from all of their departments. Our Head of Marketing, Nico Watson, went along to a fantastic session from Marcia Burris, Senior Consultant at HBR Consulting, and Carissa J. Vogel, Associate Dean for Library Services at Yeshiva University, last week at #AALL2017 “How to Develop a Budget That You and Your Organisation Can Live with - and Still Achieve Your Strategic Goals”. This is what he learnt.

How to Develop a Budget That You & Your Organisation Can Live With


It seems that, when it comes to your budget, there is a constant conflict between goals and reality, as Marcia and Carissa explained. You’re trying to fit within this financial constraint, yet your cost keeps rising - as do the demands placed upon your service. Naturally, this creates a serious issue. Our current business climate means that Librarians must be innovators in order to survive. Librarians are struggling to pay for what they
do have but, at the same time, are required to produce more with the same budget.


What does a budget involve?

A budget is ultimately an estimate of income and expenses for a period of time, which sounds relatively simple in theory. In practice though, this is a little more challenging. The goal of a budget is to enable you to plan strategically for the future. It must be both realistic and attainable, whilst also holding true to the fact that it is an estimate. It’s no wonder that it takes considerable time to plan out a detailed budget.

The way you put together your budget is likely to be influenced by the culture of your organisation. Some organisations may prefer to always be on target, whilst others are encouraged to spend all their budget through the “use it or lose it” approach. It will always be both an art and a challenge, as you try to balance various organisational needs within your means. As Marcia and Carissa stated, a lot of budgeting is about working well within your organisational culture and internal politics.

A big part of this is not making assumptions:

  • Understand what falls within your budget, and what does not
  • Be aware of your funding sources and available options
  • Understand the approval process - once your budget is approved, is it final or subject to further change?
  • Be clear on all the relevant terminology, you don’t want to be caught out


Three top budgeting techniques

Marcia and Carissa went through three specific techniques to help you develop accurate budgets based on your available data and institutional needs.

1. Contractual content budgeting (Loan Management Account, online accounts):

This method is based on looking at the costs of each vendor to calculate the projected forecast for each of them, depending on contract terms and usage growth/reduction.


Resource

Contract terms

2016

2017

2018

Vendor x

4% annual 2016-18

Full year cost (including T/S/H)

Year to date

Projected cost

Service x

3.5%

$10,000

$4,830

$10,712


This is one of the simpler methods and seems to be perfect if you are just getting started with putting together budgets for the very first time.

Top tips from Marcia and Carissa:

  • Factor in possible increases due to growth in your organisation size or user base
  • If your headcount is down, reach out to your vendors to ask them about possible cost reductions

2. Cost trending / forecast

Cost trending is mostly used when your costs don’t follow any regular patterns. The goal of this methodology is to look at the average spend and allow additional room for potential unforeseen cost increases.

Alternatively, you can forecast your costs per spending type year by year. This helps you to look at the total spend of your department, and assess what might cause your spending to shoot up e.g. a rise in book purchases in 2014.

Top tips from Marcia and Carissa:

  • Take a safer approach - use your average spend and add a little extra on
  • Look for patterns - what’s the average annual increase? Can you use this to safely predict your spending for 2018?
  • Look at your current year to date (YTD) cost and calculate where you will be at the end of the year by adding the average annual increase, plus a few percent

3. Item-based (Zero-based) budgeting
 

By its very definition, item-based budgeting means that you budget at the item-level for every expense, which is ultimately the most accurate way by which you can budget. This method sounds good in theory though, of course, it isn’t without its challenges. Not only will you need to predict the cost of each item, but you will also have to defend each item and be able to explain why it is needed.

And then how do you predict one-off purchases? You may need to insert some space for unanticipated spending.


Key takeaways:
 
Create the fields you need:
  • GL (General Ledger) codes and budget locations
  • Track costs by date or year
  • Use a field to identify Loan Management Accounts (LMAs) or other multi-year contracts with fixed annual increases
  • Use a field to indicate cancellations so you can easily omit these from future budget worksheets
  • Distinguish one-time vs. ongoing purchases
  • Track costs in your Integrated Library System in the same way that your accounting team do

How to budget strategically

Your library strategy shouldn’t be dictated by your vendors’ pricing. It should be fully planned with you in the driver’s seat. Consider where you want to go with your service, and what you need to plan for in order to achieve that. What will fall on the library’s budget?

Marcia and Carissa took us through three ways of strategic planning:


1. Long range strategic planning
 

For successful long range strategic planning it’s imperative that you understand the direction of budgeting at the company level  - your goal is to be ahead of the game. Nobody wants to fall into the situation of being told “this is software not hardware, so it’s not IT based”. You need to understand your organisation’s priorities.

Consider how you can tie all of your budget ‘asks’ into the strategic plan of your department and parent institution. To do so, it’ll likely be helpful to understand your organisation’s funding sources and their requirements, you can then endeavour to show how your deliverables (and funding needs) match up with those.


2. Project based budgeting
 

What happens when your new head of department wants to create a project centre? What will the impact on your budget be? Annual proposals for new purchases and projects will often create a need for funds to be reallocated.

In this scenario, you will need to submit a proposal to your decision makers. This should include a statement / purpose of the funds requested, an identified source of funding, the cost of similar products and the business benefit of the project proposed. Remember, you should always be able to show the ROI (return on investment) for your proposed budget item.


3. Cost saving strategies

When funds are thin, it’s worth getting your stakeholders involved to see what non-essential items can be cut. It’s probably best to identify items that could potentially be cancelled in your Loan Management Account first, and then include these in a report to be sent to your stakeholders.

Consider what you feel could be cut - are there any duplicate sources of information? If content is available in multiple formats e.g. print and digital, be sure to indicate that to your stakeholders, particularly when cancelling print will reduce your costs.

Another option here is to consider sharing opportunities. For instance, Marcia and Carissa suggested looking at putting together consortium agreements with other groups who use the same funding as you.


What does success look like?

Your work is ultimately all about delivering value to your organisation. The purpose of the library service is to deliver strategic information whilst aligning your spending with the needs of your organisation. Naturally, this means investing wisely and not spending more than necessary to get what you need.

Marcia and Carissa’s top tips for meeting cost expectations:

  • Don’t buy things that you don’t need
  • Don’t overpay for items that you do need
  • Push back on vendor price increases and use your budget as a leverage tool i.e. “financial controls”
  • Determine the point at which you will choose to cancel any paid services
  • Watch out for new products entering the market
  • Look out for lower cost options from established competitors
  • Use LMAs / subscription bundles as appropriate
  • Develop relationships with your sales rep (and be sure to get the maximum value out of your vendors)
  • Never pay full price! E.g. negotiate a multi-year agreement with your vendors
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Topics: Event AALL Library